2-25-14 “Alaska, where a deal is a deal?”

Globe & Mail.  Spanish oil major Repsol SA says its board of directors has approved a definitive $5-billion (U.S.) settlement from Argentina.  Repsol is a new Alaska North Slope company which, after the Argentina adventure, are seeking a more productive experience in the far North.  As we wrote in October, the jury is still out on Repsol's Alaska venture, though we remain hopeful.  -dh

Leslie Wien Hajdukovich: A Lifelong Fairbanksan Explains Why She Opposes Efforts To Repeal SB21, Alaska's New Oil Tax Reform Law.

Sarah Palin's Role: ACES

Part II: Has Alaska Become A Place Where A Deal Is A Deal?

(See Competition Perspectives: Parts I, II, III, and IV) 

With a third of Alaska's economy based on oil, with oil production declining, and with the entire state economy over a third dependent on oil, repealing Alaska's new tax reform law poses a clear and present danger.

See More Tax History: "Don't Forget The Mackenzie Delta"

by 

Dave Harbour

Earlier this month in Part I, we asked if "Alaska has become a place where a deal is a deal."

Used to be that a handshake was sufficient between honorable Alaskans to confirm a deal.

Old timers tell us that in the 40s and 50s and even to the mid 60s, Alaska used to be a place where you didn't need to lock your doors at night–even in the cities.

If you trusted your house to be secure in the evening, you surely trusted the word of friends and other fellow Alaskans.

Then came the great Prudhoe Bay discovery in the winter of 1967-68.  Our leaders then could have raised oil and gas taxes to a level they thought to be consistent with the Constitution's admonition to obtain the maximum benefit of resource development for citizens.  The rule in place, they could then have reasonably conducted the 1969 lease sale.  The oil company bidders could then have bid with the more reasonable certainty of knowing the rules would not likely change after investments had been made.

Instead, Alaska became greedy, we believe, having lived through those times.  Folks started locking their doors.  In the twelve years following the 1969 lease sale, the governor and legislature increased industry taxes dramatically, about a dozen times in that many years–after the lease sale had locked in company investment decisions.  Then followed a period of dramatically increased cost estimates caused by increasing environmental, legal, political, labor and tax burdens.

Yes, Prudhoe Bay was big and could sustain a lot of abusive tax attacks.  But when they bid, the companies did so contemplating the risks known at the time.  Then they found in short order that the rules of the game would be changing before, during and after vast new investments in Alaska occurred.

This commentary does not quibble with whether or not any of the decisions made were 'right' or 'wrong'.

We do conclude without much fear of contradiction that by changing the rules of the game so often and so dramatically after it was too late for investors to reevaluate, Alaska was beginning to develop for itself a reputation with early signs of tarnish.

Then after a decade of changing rules, Governor Hammond and both the Republican and Democratic leadership of the House and Senate convened a press conference — 33 years ago next month — to signal that a landmark bill had passed which created for Alaska — in general — a "Fair Share" of resource development revenue.

A rather peaceful investment climate ensued for a generation — until the early 2000s when Governor Frank Murkowski (NGP Photo) attempted with good intent to bargain to give gas pipeline investors fiscal certainty in return for increased oil company production taxes.  The companies, in good faith agreed.  The legislature honored part of the bargain by increasing their taxes but neglected to provide the necessary fiscal certainty to permit the creation of a viable gas pipeline project.  The companies were rope-a-doped after two decades of improved relationships that even survived the desperate oil price drops of the late 1980s.

Governor Sarah Palin (NGP Photo) replaced Murkowski in the next election of 2006 and, with legislative acquiescence, increased industry taxes which were applied with no real or feigned pretense of good intent.  To add insult to injury Murkowski's tax increase was increased further and applied retroactively.

Last spring, the legislature and governor acted to more reasonably reform the state's production tax and immediately thereafter, legislative foes, environmental groups and others initiated a voters referendum designed to repeal the new law, (SB21).  Now, as we said in Part I, investors await the outcome of Alaska's August 19 primary election.  If SB21 is affirmed by a majority voting "NO" to repeal, Alaska will have improved its investment climate reputation.

Our astute readers will also note that a mid year primary election is often lightly attended, usually by those who are determined to support or oppose a particular candidate or ballot proposition.  In this case, in addition to primary candidates, voters will be adopting or rejecting very controversial propositions to advance widespread marijuana use in Alaska, to increase and provide a cost of living increase for the minimum wage in the state and an environmental initiative to block mining development. 

Mathematicians and odds makers among us agree on one thing: a determined voter base of those supporting drugs, labor increases and anti-development forces could, in general, be more likely to vote to repeal an improved corporate investment climate than to keep the new oil tax reform law in place.  (Note: these three propositions were moved to the November 2014 ballot, somewhat lowering the chances that oil tax repeal legislation will be repealed on August 19.  -dh) ​

Accordingly, those opposed to all the initiatives will need to mount a big and unusually creative campaign if they are to stimulate a turnout of pro-free enterprise supporters and have a hope of balancing the scales.  

So picture this.  In Alaska's late summer a great tug of war will occur with big stakes.  In the middle, we have a great chasm.  On the left is an army of environmentalist activists, some labor union activists, and marijuana proponents and their supporters pulling, sweating, grunting, polling, going door-to-door, advertising, and writing letters to the editor for all they're worth.  On the right side of the chasm, pulling the rope in the other direction are those opposed to drug use, anti-business tactics and policies that repel investment and natural resource development.  

One set of policies will be pulled into the chasm.  

If the left side is pulled down, Alaska's reputation as a good place to live, work and play might be on the way to repair–except that there would be always the threat of another, similar referendum, year after year.

If the business side goes down, we'll know that in Alaska, a deal is for sure not a deal–until further notice!

In that case, expect dramatic reductions in investment, significant out-migration, decreasing oil production, less employment, fewer government services, lower real estate prices and overall economic malaise.  Alaska would, in this fix, be more likely to become a ward of the federal government than living up to its former reputation as the Last Frontier, the Pioneering State.

And, finally, just as natural-resource-rich Alaska retreats from resource development, Russia, Canada and other Arctic nations are aggressively seeking to develop their far North resources and exploit the Northwest Passage while protecting and expanding their Arctic sovereignty.  

Reforming Alaska's tax policies that have put it behind California in production, therefore, is not a local issue, but an international event that affects the security and economies and people of both the United States and Canada.   (Commentary updated slightly, 8-19-14.  -dh)

Opinion Editorial: A Lifelong Fairbanksan Opposes Efforts To Repeal SB21

by

Leslie Wien Hajdukovich​

Alaska’s oil and gas industry has been the biggest driver in our state’s economy for 50 years. Responsible development of our oil and gas reserves has fueled our schools, roads, airports, government, our grocery stores, coffee huts and car dealerships. As a fifth generation Alaskan, I am thankful for an industry that allows me, and my family the opportunity to live in Alaska.

As an active member of the Fairbanks community, I have served on the Fairbanks school board for six years, three as president, and in other volunteer capacities that have benefitted our youth. It is important to me that every child in Alaska receive a quality education – an education that prepares them for the work force, and for future employment in our great state. Upon being elected to the school board, I quickly learned that our school district’s funding is heavily dependent upon the success of the oil and gas industry in Alaska.

Last October, I was asked to be a statewide co-chair for the effort to defeat the oil tax referendum that is on the ballot this August. I felt it too important an issue to say no. Over the last three months, I have become informed and carefully studied the issues around new oil tax reform. I have a clear understanding of why oil tax reform is good for Alaska.

The state budget shortfall is not due to oil tax reform, but rather to declining oil production in our state and falling oil prices. Oil prices are not something we can control in Alaska, however we can influence decisions that affect production. That is exactly what new oil tax reform does. Because of provisions in the new law, the outlook for Alaska is much brighter in the long term. With oil tax reform, state revenues from oil will be more balanced, predictable and beneficial to our state.

Since new oil tax reform passed, oil companies in Alaska have announced billions of dollars in new investment. In just one example, ConocoPhillips has announced a 54 percent increase in investment in Alaska over 2013, and most of that increase is due to the change in the tax structure. This investment is tied to new exploration and increasing oil production. The Trans-Alaska Pipeline has tremendous value to Alaskans, but only if it has oil flowing through it. Right now, it is flowing at one quarter of its peak capacity and still declining. Oil tax reform is about taking the steps necessary to add more oil to the pipeline.

As a Fairbanksan, I have high hopes that a gas line is in our future. We need the financial relief of heating our homes, businesses and institutions with cheaper and cleaner burning gas. Investment in North Slope oil actually increases our chances of gas exploration and a gas line. They go hand in hand.

One thing I’ve learned over the last few months is that new oil tax reform offers great opportunity for Alaskans, not only by boosting our economy, but offering a long-term, sustainable funding source for our state coffers. It promises our children and grandchildren a brighter future.  This is the right tax reform at the right time. I encourage Alaskan voters to get informed, and to please Vote No on 1 this August.

Leslie Wien Hajdukovich is a lifelong Fairbanksan and her family’s history in Alaska spans over 100 years. Her Grandmother Ada Wien was a delegate to the Alaska Statehood Constitutional Convention.    

BBNC Opposes Ballot Measure 1

Published on Tuesday, February 25 2014 10:19

FOR IMMEDIATE RELEASE

February 25, 2014

Contact: Jason Metrokin, President & CEO, jmetrokin@bbnc.net or

Scott Torrison, Sr. Vice President & COO, storrison@bbnc.net or (907) 278-3602

Bristol Bay Native Corporation Opposes Ballot Measure 1

On Friday, Feb. 21, the Bristol Bay Native Corporation (BBNC) Board of Directors passed a resolution opposing Ballot Measure 1, which is a veto referendum seeking to repeal the Alaska Legislature’s oil tax bill passed during the 2013 session. Ballot Measure 1 seeks to repeal Senate Bill 21, also known as the Oil and Gas Production Tax, which modified the state’s oil tax regime in a manner designed to increase oil and gas exploration, development and production, and stimulate greater investment in Alaska. Ballot Measure 1 will appear on the August 19, 2014 primary ballot in Alaska.

BBNC has made significant investments in the Alaska oilfield services industry through its subsidiary companies Kakivik Asset Management, CCI Industrial Services and Peak Oilfield Service Company. These subsidiaries provide substantial benefits to BBNC shareholders in the form of employment, wages, and profits that contribute to dividends. The operations also provide over 1,000 high paying jobs primarily to Alaskans. The continued growth and success of these subsidiaries, as well as Alaska in general, is dependent upon a fiscal environment that encourages investment and economic growth in the Alaska oilfield services industry.

In the past year, under the current Oil and Gas Production Tax, BBNC has seen a dramatic increase in oilfield activity. BBNC is concerned that if Ballot Measure 1 were to pass, and Alaska returns to the prior tax structure, it will result in decreased oil and gas investment activity in the state; this would have an immediate and negative impact on BBNC’s subsidiaries and its shareholders, as well as the state of Alaska as a whole.

BBNC’s prudent support of Alaska’s oil and gas industry aligns with its balanced approach to the development of state resources. “Alaska’s oil and gas sector provides our shareholders with significant employment opportunities and makes major contributions to our ability to pay dividends,” said BBNC President and CEO Jason Metrokin. “BBNC strongly supports the industry that makes it possible to provide such benefits to its shareholders and opposes Ballot Measure 1.”

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Bristol Bay Native Corporation (BBNC) is a responsible Alaska Native investment corporation dedicated to the mission of “Enriching Our Native Way of Life.” Established through the Alaska Native Claims Settlement Act of 1971, BBNC works to ensure the continuation of the life and culture of its over 9,400 shareholders – the Eskimo, Indian and Aleut Natives of Southwest Alaska’s Bristol Bay region.